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CIRCULAR No

CIRCULAR No. 89/1998/TT-BTC OF JUNE 27, 1998 GUIDING THE IMPLEMENTATION OF DECREE No. 28/1998/ND-CP OF MAY 11, 1998 OF THE GOVERNMENT WHICH DETAILS THE IMPLEMENTATION OF THE VALUE-ADDED TAX (VAT) LAW

Pursuant to the VAT Law No. 02/1997/QH9 of May 10, 1997;

Pursuant to Decree No. 28/1998/ND-CP of May 11, 1998 of the Government detailing the implementation of the VAT Law;

The Ministry of Finance hereby guides the implementation as follows:

A. SCOPE OF APPLICATION

OF THE VAT LAW

I. TAXABLE OBJECTS AND TAX PAYERS

1. Taxable objects:

Under Article 2 of the VAT Law and Article 3 of Decree No. 28/1998/ND-CP of the Government, the objects to be imposed with value-added tax shall be commodities and services used for production, business and consumption in Vietnam, except for those not subject to such tax as prescribed in Section II, Part A of this Circular.

2. VAT payers:

Under Article 3 of the VAT Law and Article 3 of Decree No. 28/1998/ND-CP of the Government, all organizations and individuals that produce and/or trade in the taxable commodities and services in Vietnam, regardless of production and business lines, forms and business organizations (collectively referred to as business establishments), and other organizations and individuals that import taxable commodities (collectively referred to as the importers) shall all be VAT payers.

a/ Production, business and/or service organizations include:

- State enterprises; economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, people's armed force units and other non-business organizations and units; cooperatives;

- Private enterprises, limited liability companies, joint stock companies established and operating according to laws;

- Foreign-invested enterprises and foreign parties to business cooperation contracts under the Law on Foreign Investment in Vietnam; foreign companies and organizations conducting business activities in Vietnam not under the Law on Foreign Investment in Vietnam;

b/ Individuals producing and/or trading in commodities and/or services include independent business people, households, and individuals joining together for production and business activities without forming themselves into legal entities for business.

II. NON-TAXABLE OBJECTS:

Under Article 4 of the VAT Law and Article 4 of Decree No. 28/1998/ND-CP of the Government, the following commodities and services shall not be liable to VAT:

1. Products of cultivation (including planted forest products), husbandry and aquaculture, not yet processed into other products or only preliminarily processed, which have been produced and sold by organizations and/or individuals themselves.

The common preliminary processing is the preliminary processing linked to the process of turning out cultivation, husbandry and aquacultural products which, after being preliminarily processed, have not yet become other products and commodities.

Example: sun-drying, heat-drying, husking (peeling), threshing agricultural products; icing, salting and sun-drying fish, shrimps and other aquatic products.

2. Salt products, including salt made from sea water, salt from natural mines, crystallized salt, iodized salt.

3. Commodities and/or services subject to special consumption tax shall not be liable to value-added tax in the production, import and/or trading process, which have already been subject to special consumption tax;

Example 1: Company A which produces cigarettes and is liable to special consumption tax shall not have to pay VAT for the cigarette in the production process for which the special consumption tax has already been paid; business establishments which buy and sell cigarettes shall have to pay VAT therefor.

Example 2:

4. Equipment, machinery and specialized transport means, which have not yet been manufactured in the country, but imported by the establishment having the investment project to formulate its fixed assets under that project.

In cases where an establishment imports the equipment and/or machinery in complete technological chains which are not subject to VAT but contain equipment and/or machinery that can be manufactured in the country, VAT shall not be imposed on the whole equipment and/or machinery chains.

The dossiers for determining which kind of equipment, machinery and/or specialized transport means imported by an establishment shall not be subject to VAT include:

- The investment project already approved by the competent level or licensed for investment (for investment projects).

- The import contract or plan which determines the origin of the import, types of equipment, machinery and/or specialized transport means imported to formulate fixed assets under the investment project.

- The certification by the managing ministry, specialized agency or provincial-level specialized management agency with regard to the equipment, machinery and/or specialized transport means imported by the establishment to formulate its fixed assets, which can not be manufactured in the country.

The importing establishment shall compile and submit the above dossiers to the customs office when declaring VAT on the import commodities, which shall serve as basis for determining the import items not subject to VAT. The customs office shall base itself on the goods actually imported and dossiers of the business establishment to determine concretely the import items not subject to VAT.

5. The transfer of land use right is subject to land use right transfer tax;

6. Houses under the State ownership, which are sold to the current tenants under Decree No. 61-CP of July 5, 1994 of the Government on the purchase, sale and trading in residential houses.

7. Credit services and investment funds which include the capital lending and financial leasing by banking, credit and/or financial organizations, investment funds and capital transfer activities according to law.

8. Life insurance; pupils insurance; domestic animal and plant insurance, and other types of non-commercial insurance such as the social insurance, medical insurance, labor insurance.

9. Medical services including medical examination and treatment, disease and epidemic prevention, health convalescence for people, and veterinary service (excluding the production, processing and selling curative and preventive medicines).

10. Cultural, exhibition and sport activities of mass movement character, organization of training and/or competition free of charge or with pecuniary collection through the sale of tickets but not for the commercial purposes: this collected amount shall be fully or partly used to cover the expenses for the operation of the unit, and the remainder shall be fully remitted into the State budget according to the financial regime set by the State.

Art performances: "cheo" (traditional opera), "tuong" (classical drama), "cai luong" (reformed drama), singings, dancing, musics, play, circus, puppet shows, monologues and other traditional arts and culture, other art performance activities and show-organizing services, regardless of performance forms and of paid or free admission.

The production of films of different kinds: motion pictures, video films and others.

Film distribution and screenings: For motion pictures, regardless of their themes; for video films, they shall be only documentaries, reportages, sciences.

11. Teaching, vocational teaching, which include general education teaching, foreign language teaching, informatics teaching, dancing, singing and painting teaching, teaching of musics, drama, circus, physical training, sports, child care and education, teaching of other occupations aimed to train and foster the educational and/or professional levels of each person.

12. Radio and television broadcastings financed by the State budget of all levels and/or other organizations, free of charge.

13. Printing, publication and distribution: newspapers (including paper page transmission), magazines, specialized bulletins, political books, textbooks, teaching stuffs, collections of legal documents (which are books with legal documents, resolutions... reflecting the Party's and State's lines and policies), books published in ethnic minority languages; pictures, photos, posters; money printing.

14. Public-utility services regarding sanitation and water drainage along streets and population quarters; maintenance of zoos, flower gardens, street greenery, public lighting; funeral services.

- Street sanitation and water drainage services include such activities as gathering, transporting and treating garbages and discarded things, dredging sewers, treating discharge water, handling water-logging and floodings in streets and population quarters.

- Maintenance of zoos in parks as well as national gardens includes such activities as the management, tending and protection of birds and animals in parks, zoos, national gardens; the planting of trees and flowers in parks and along streets.

For parks, zoos... where tickets are sold for admission from which the proceeds are considered the amount of fee to cover the expenses for the management of parks, zoos... according to the State's regulations, such revenue shall not be liable to VAT.

- The funeral services include the leasing of funeral houses and cars by the Funeral Services Company; the burials, cremation.

15. The renovation, repair and construction of cultural and/or art projects, public utility projects, infrastructure and houses of gratitude with capital from the sources contributed by people and humanitarian aids, and even from the State budget allocation which, however, shall not exceed 30% of the total expenditure for the project.

16. Public passenger transportation by bus companies established and operating under the Communications and Transport Ministry's regulations to meet the people's requirements for communication within cities, towns and/or industrial parks or between urban centers and adjacent industrial zones according to the routes, stops, time and fares prescribed by the competent level.

17. Surveys, geological explorations, measuring, mapping, which are categorized as the State's basic surveys and implemented with State budget funds;

18. Irrigation and drainage in service of agricultural production; clean water tapped by organizations and/or individuals in service of daily life in rural, mountainous, island, deep-lying and remote areas;

19. Weapons and military equipment in service of national defense and security, the lists of which shall be specified by the Ministry of Defense and the Ministry of Public Security after consulting the Ministry of Finance;

20. Commodities imported in the following cases shall not be subject to VAT in the import process:

a/ Humanitarian aid and non-refundable aid, including those from international organizations, foreign States, Governments, associations, non-governmental organizations to the Vietnamese Government, mass organizations or associations, etc.

The humanitarian aid and non-refundable aid must be accompanied with the following papers:

- The written certification of aid by the competent agency, clearly stating the agencies and/or organizations that have provided aid that they are humanitarian and/or non-refundable aid.

- Other papers related to the reception of the goods consignment (according to the regulations applicable to import goods).

b/ Gifts presented to State bodies, political organizations, socio-political organizations, social organizations, socio-professional organizations, people's army units.

The agencies and/or organizations, when receiving import goods as gifts which are not liable to VAT, shall have to submit a written request for non-collection of VAT (together with relevant papers certifying that the import goods are gifts) clearly stating the origins, quantity and types of the import commodities.

c/ Utensils of foreign organizations and individuals under the diplomatic immunity quotas; personal effects carried along within the tax-free baggage quotas; articles of overseas Vietnamese who carry along in their return home.

The quantity and type of the articles imported in the cases defined in Points b and c above shall be determined according to the State's regulations.

21. Goods transported across the border or in transit through Vietnam; goods temporarily imported for reexport, goods temporarily exported for reimport; raw materials and materials imported for production or processing of export goods under the production or processing contracts with foreign countries.

22. Goods and/or services provided to the following objects and in the following cases:

- Goods and/or services provided directly to sea-going vessels, airplanes, trains or other transport means from Vietnam to foreign country(ies) or from foreign country(ies) to (through) Vietnam for further trip(s) to other countries, such as: provision of gasoline, oil, water and foods including food rations for passengers; the provision of repair and/or cleaning services for international transport means; the transport of commodities, passengers and/or baggages from Vietnam to foreign country(ies) and from foreign country(ies) to Vietnam.

- Goods sold in duty-free shops at airports, sea ports, international terminals and border-gates.

23. Technology transfers determined according to provisions at Chapter III "Technology Transfer" of the Civil Code of the Socialist Republic of Vietnam and documents guiding the implementation thereof. With regard to contracts for technology transfer accompanied with machinery and equipment, the non-collection of tax shall be applied to only the value of the transferred technology(ies).

24. Gold imported in the form of ingots and/or pieces and gold not yet fashioned into products, fine art articles, jewelry or other products.

Gold in ingots, pieces and unfashioned gold shall be determined in accordance with international stipulations.

25. Export products which are exploited mineral resources and not yet processed into other products. More concretely as follows:

- Crude oil;

- Coal;

- Slab stones, sand, rare earth;

- Precious stones;

- Manganese ore, tin ore, iron ore, chromate ore, emanate ore, apatite ore.

26. Goods and/or services of business individuals whose average income level is lower than the State officials' minimum wage set by the State. The income is determined with the business turnover minus (-) the reasonable cost of such business operation.

Organizations and/or individuals that produce, trade in and/or import goods or provide services, which are not subject to VAT, shall not be eligible for deduction or reimbursement of the input VAT on such goods and/or services in the process not liable to VAT.

B. TAX CALCULATION BASES

AND METHODS

The bases for calculation of VAT are the tax calculation price and the tax rate.

I. THE VAT CALCULATION PRICE:

Under Article 7 of the VAT Law and Article 6 of Decree No. 28/1998/ND-CP, VAT calculation prices of commodities and services shall be determined specifically as follows:

1. For goods and/or services sold and/or provided by production and/or business establishments to other objects, it shall be the sale price without VAT.

2. For import goods, it shall be the import price at the border-gate plus (+) import tax; the import price at the border-gate serving as basis for VAT calculation shall be determined according to the regulations on the prices for calculation of tax on import goods.

Example: An establishment imports television sets in complete units, the price for the calculation of import tax is 2,000,000 dong/unit.

- The rates for import tax is 30% and for VAT is 10%.

- The payable import tax amount: 2,000,000 dong x 30% = 600,000 dong.

- The VAT calculation price is: 2,000,000 dong + 600,000 dong = 2,600,000 dong.

- The payable VAT amount is: 2,600,000 dong x 10% = 260,000 dong.

In cases where import goods are eligible for import tax exemption or reduction, the VAT calculation price shall be the import goods price plus (+) the import tax, determined according to the tax exemption or reduction amount.

With regard to the services provided by foreign party(ies) to consumers in Vietnam, the VAT-free price shall be determined according to contracts; in cases where the contract fails to prescribe in details the VAT amount, the VAT calculation price shall be the service prices to be paid to the foreign party(ies).

Example: Company A in Vietnam hires a foreign firm to design the construction at the contractual price of 100 million dong to be paid to the latter, Company A shall have to calculate and pay VAT at the rate of 10% of 100 million dong.

3. Goods and/or services used for exchange, internal use, donation or as gifts, the VAT calculation price shall be determined according to the tax calculation price(s) of goods and/or services of the same or equivalent types at the time when such activities arise.

Example: Unit A which produces electric fans has used 50 such products for exchange of steel and iron with Establishment B (or given such products to its departments and sections for internal use), the sale price (without tax) is 400,000 dong /unit. So, the payable VAT on the number of fans mentioned above shall be:

400,000 dong/unit x 50 units x 10% = 2,000,000 dong.

4. Property leasing activities include the leasing of houses, workshops, storehouses, ferries, yards, transport means, machinery, equipment, etc.

The VAT calculation price shall be the leasing price without tax. In cases where the leasing is made in the forms of periodical payment or advance payment of rent for a leasing term, the VAT shall be calculated on the amount of periodical payment or advance payment, including other forms of rent payment such as the house leasing with collection of rent for renovation, repair and/or upgrading of the leased houses at the tenants' request.

The property leasing prices agreed upon by parties shall be determined according to contracts. In cases where the price frame is prescribed by law, the leasing price shall be determined within the prescribed price frame.

5. For goods sold by mode of deferred payment, it shall be calculated according to the non-VAT lumpsum price of such goods (excluding interests on the deferred payment), not according to each periodical deferred payment.

Example: A company trades in Honda motorbikes of 100 cc type, the non-VAT lumpsum price is 25 million dong, and the 6 month-deferred payment price is 25 million dong plus the interest of 0,3 million dong thereon, so the VAT calculation price shall be 25 million dong/unit.

6. For goods processing, the tax calculation price shall be the processing price without tax, which includes: the remuneration, costs of fuel, motors, auxiliary materials and other expenses for the processing.

7. For construction and installation activities:

- For the construction of projects (with or without the supply of materials and raw materials) and/or installation of equipment therein, the VAT calculation price shall be the construction and/or installation price without VAT.

In cases where the payment for the project construction and/or installation is made according to the unit price and the construction and/or installation tempo of project items and/or the volume of work already completed and handed over, the VAT shall be calculated on the value of the work volume completed and handed over.

Example 1: The Hanoi textile company (called Party A) hires the Song Hong construction company (called Party B) to carry out the construction and installation at a to-be-expanded workshop.

The total estimated cost of the project without VAT is 200 billion dong, including:

- The value of construction and installation: 80 billion.

- The value of the equipment supplied and installed by Party B: 120 billion.

+ Party B will add 10% VAT, being: 20 billion.

+ The total amount to be paid by Party A is: 220 billion.

In cases where Party A agrees to pay Party B according to each project item (supposing that the construction of the workshop is completed and paid first), Party A, when calculating and paying 80 billion dong for construction, shall have to add 10% VAT to the amount to be paid to Party B; the amount to be paid with VAT shall be 80 billion + 8 billion = 88 billion.

The equipment supplied and installed by Party B shall be paid subsequently and calculated in the same way mentioned above.

According to the above example, the declaration and payment of VAT by each Party shall be made as follows:

+ Party B:

- The output VAT is: 20 billion

- The input VAT already paid for the purchase

of cement, steel and iron, equipment... presumably is: 14 billion.

- The remaining VAT amount to be paid: 6 billion.

+ Party A:

- Accepting the workshop, accounting it as an increase of fixed assets for amortization shall be 200 billion (the value without VAT).

- The already paid VAT is 20 billion, which shall be deducted into the output tax on the sold goods or requested for reimbursement according to regulations.

For the construction of a project or a project item, which is undertaken by many units under contracts signed directly with the project owner or subcontracts from the contractors, VAT shall be calculated and paid for the contractual parts of the project.

Example 2: Also with figures in Example 1, but the construction of the project is undertaken by many units which signed contracts with the project owner as follows:

- There are two contractors signing contracts with Hanoi textile company. They are Company B which undertakes the construction of the workshop, with the value of 80 billion, and Company C which undertakes the supply and installation of equipment, valued at 120 billion. But Company C has signed a contract with Company D for the supply of equipment valued at 110 billion.

The VAT on turnover of each contracting company shall be calculated as follows:

+ Company B:

80 billion x 10% = 8 billion, the price with VAT = 88 billion.

+ Company C:

120 billion x 10% = 12 billion, the price with VAT = 132 billion.

Total: 20 billion 220 billion.

But when the payable VAT amount is calculated, Companies B and C shall be entitled to the deduction of the VAT amount already paid by each company in the previous process. The price for payment by Company A to Company B and company C calculated on the whole value of this project remains to be 220 billion, including 20 billion of VAT as in Example 1. Company C, when determining the payable VAT, shall be entitled to the deduction of input VAT on the equipment supplied by Company D.

8. For business service activities paid with remuneration or commissions such as goods sale and/or purchase agents, shipping agents, brokerage service, import and/or export assignment for commission, the VAT calculation price shall be the remuneration or commission without subtracting any cost, which is earned by the establishment from carrying out such activities. Goods sold by agents are still subject to VAT calculated on the sale price.

9. For transport, loading and unloading activities, the VAT calculation price shall be the transport freight or loading and unloading charge without VAT.

The transport activities include: the passenger transport and the cargo transport by railways, land roads, waterways, air, tubes, etc.

For air, sea, railways... transport activities involving international transport, the turnover from the international transport (the turnover earned from transport activities overseas and from Vietnam to foreign countries) shall not be subject to VAT.

10. For goods and/or services of particular characters with the use of such vouchers as post stamps, transport freight tickets, lottery tickets... where the payment prices with VAT are written, the non-VAT price shall be determined as follows:

Payment prices (ticket prices, stamp prices...)

Non-VAT price = --------------------------------------------------------

1 + (%) the tax rate for such goods or service

Example: A provincial post office in January 1999 sells 10,000 stamps at the price of 400 dong/each, the non-VAT price and VAT of such number of stamps shall be calculated as follows:

- Prices written on tickets (sale price with tax) = 10,000 x 400 dong = 4,000,000 dong.

4,000,000 dong

- The non-VAT price = ------------------------ = 3,636,363 dong.

1 + 10%

- VAT to be paid at the rate of 10% is:

3,636,363 dong x 10% = 363,636 dong.

or 4,000,000 dong - 3,636,363 dong = 363,636 dong.

The tax calculation price of goods and/or services according to the provisions of Article 6, Decree No. 28/1998/ND-CP includes the additional collections and surcharges besides the prices of goods and/or services, which the business establishments are entitled to enjoy.

The additional collections by business establishments according to the State's regimes not calculated into the business establishments' turnover shall not be subject to VAT.

II. THE VAT RATES:

Under Article 8 of the VAT Law and Article 7 of Decree No. 28/1998/ND-CP of the Government, the VAT rates shall be applied as follows:

1. The rate of 0% shall be applied to export goods.

The export goods include also the processed goods for export. The exportation includes the export to foreign countries and the export into the export processing zones.

For goods brought overseas for sale, display at exhibition-cum-fairs, if there are adequate grounds to determine that they are export goods, the tax rate of 0% shall also apply.

Goods exported by production and/or business establishments shall also enjoy the 0% tax rate provided that they are actually exported goods as evidenced through the following papers:

- The sale contracts or the contracts for production and/or processing of export goods signed with foreign countries.

- Invoices for sale or return of processed goods to foreign parties and/or export processing enterprises.

- Customs declarations on export goods with the customs office's inspection and certification that the goods have been already exported.

2. The tax rate of 5% shall be applied to the following commodities and services:

a/ Clean water in service of production and daily life, which is exploited from natural sources by production and/or business establishments and supplied to water users (except for clean water which is exploited by establishments in rural, mountainous, island, deep-lying and remote areas in service of production and daily life there, which is not subject to tax; and water in the 10% tax rate group).

b/ Fertilizers including organic and inorganic fertilizers such as kalinite fertilizer, nitrogenous (urea) fertilizer, NPK, mixed nitrogenous fertilizer, phosphate fertilizer, potassium, microbiological fertilizer, etc.

- Ores used as raw materials for the production of fertilizers such as apatite for the production of phosphate fertilizers, mud for the manufacture of micro-biological fertilizers, etc.

- Assorted insecticides, cockroach, rat, termite and woodborer killers, fungicides, weed killers, growth restraints or stimulants, plant growth regulators, etc.

c/ Equipment, machinery and instruments for medical purposes such as roentgen apparatus, apparatus for radioscopy, skiagraphy, examination and/or treatment, equipment used for surgery and/or wound treatment, ambulance, the sphymomano-meters, cardiographers, pulse feelers, devices for injection, blood transfusion, etc.

- Medical cotton, bandages.

d/ Medicinal and prophylactic drugs, including those for human beings and domestic animals.

e/ Teaching and learning, including visual aids (models, drawings), rulers, writing boards, chalk, compasses as well as specialized equipment and instruments for teaching, learning, laboratories.

f/ Children's toys, scientific and technical books, art and literary books, children's books, legal books except for collections of legal documents including Directives, Resolutions of the Party and State not subject to tax prescribed in Clause 13, Article 4 of the VAT Law.

g/ Trading in goods items being products of cultivation, husbandry and aquaculture.

If products of this group have not gone through preliminary processing, been produced and sold by organizations and/or individuals themselves, they shall not be liable to VAT (according to provisions in Clause 1, Article 4 of the VAT Law).

h/ Unprocessed forest products (except for timber, bamboo shoots); fresh and raw foodstuff and food.

- Unprocessed forest products include those exploited from natural forests such as bamboo of various species, rattan, cane, Jew's ear, fungus, medicinal roots, leaves, flowers and plants, resins and other kinds of forest products.

- Fresh and raw foodstuff include those which have not yet been processed or have just been preliminarily processed such as pork, beef, chicken, duck, goose, fresh or alive shrimps and fish, iced or dried shrimps and fish.

- Food includes paddy, rice, maize, potato, manioc, wheat, wheat flour (excluding processed products such as instant noodle, porridge...).

i/ Jute, rush, bamboo, leaf products are those manufactured or processed from jute, rush, bamboo, leaves as the main raw materials such as jute carpets, jute yarn and bags coconut fibre carpet, mats made of jute or rush; ropes and strings made of bamboo or coconut fibre, blinds made of assorted bamboo, bamboo brooms, conical palm hats, etc.

j/ Cotton preliminarily processed from home-grown cotton is the cotton with husk and seed removed, which is already classified (imported cotton which is preliminarily processed and classified is not included in this group).

k/ Feeds for cattle, poultry and other domestic animals include processed and unprocessed ones such as bran, groundnut residue, fish powder, bone powder, etc.

l/ Scientific and technical services include activities involving scientific and technical research, application and guidances. More concretely:

- Services requiring high techniques such as assembly, trial operation, restoration, repair or readjustment of machinery, equipment, lab instruments, measuring and control instruments, specialized equipment for scientific and technical research;

- Data processing and calculation under scientific program and/or projects;

- Elaboration of techno-economic reports, feasibility and pre-feasibility studies projects;

- Analyzing samples of experimental materials, examining products;

- Guiding and organizing the application of new techniques to production.

m/ Services directly serving agricultural production include such activities as ploughing and/or harrowing farm land; digging, embanking and/or dredging canals, ponds, lakes for agricultural production; husbandry, cultivation, disease prevention; harvesting and/or gathering agricultural products.

3. The tax rate of 10% shall be applied to the following commodities and services:

a/ Mineral products: oil, gas, metal and non-metal ores, coal, sand, cobble, clay, kaolin and other mineral products;

b/ Commercial electricity sold by electricity production and business establishments, regardless of whether it is hydro-electric or thermal-electric power, etc.;

c/ Electronic and mechanical products, electric appliances;

d/ Chemical products, cosmetics;

e/ Yarns, fabrics, textile and embroidery products;

f/ Paper and paper products;

g/ Sugar, milk, confectionery, beverages, and other processed foodstuffs;

h/ Pottery, ceramic, glass, rubber and plastic products, wood and wood products; cement, bricks, tiles and other construction materials;

i/ Construction and installation;

j/ Transport, loading and unloading;

k/ Postal mail, post and telecommunications;

l/ Leasing of houses, offices, shops, storehouses, ports, storage yards, workshops, machinery, equipment, transport means;

m/ Legal consultancy services;

n/ Photo shooting, printing and developing; audio tape recording and dubbing; video tape recording, shooting and screening;

o/ Hair dressing, tailoring, fabric dyeing, laundry;

p/ Other commodities and services not specified in the 0%, 5% and 20% tax rate groups in Section II, Part A of this Circular and goods items subject to special consumption tax shall be subject to VAT in the trading process at the tax rate of 10%.

4. The tax rate of 20% shall be applied to the following commodities and services:

a/ Gold, silver and gems purchased and sold by establishments trading therein:

Gold, silver and gems establishments which process and/or fashion gold, silver and gems products without accounting separately the turnover and tax thereof, the tax rate 20% shall apply to the processing and fashioning activities.

b/ Hotel, tourism, food catering:

Hotels and tourism are determined according to standards set by specialized management agencies or according to business licenses.

Food catering, regardless of common or high-grade food;

c/ Lotteries of all kinds;

d/ Shipping agents;

e/ Brokerage service, regardless of forms and professional fields.

The above-specified VAT rates shall apply uniformly according to categories of commodities and services; for goods of the same category, there is no difference between import goods and home-made goods as well as between production and trading process.

III. VAT CALCULATION METHODS

VAT to be paid by business establishments can be calculated according to either of the following two methods: tax deduction method and the method of calculating tax directly on the added value. In cases where business establishments that pay tax by the tax deduction method conduct business activities in the purchase and sale of gold, silver and gems, they shall have to account these activities separately in order to calculate tax directly on the added values.

Objects of application and payable tax amount determined according to each method shall be as follows:

1. The tax deduction method:

a/ Objects of application shall be business units and organizations, including State enterprises, foreign-invested enterprises, private enterprises, joint stock companies, cooperatives and other business units and organizations, except for objects of the application of the method of calculating tax directly on the added values mentioned in Point 2 below.

b/ Determining the payable VAT amounts:

The payable VAT amount is equal to (=) output VAT minus (-) input VAT, in which

* The output VAT = tax calculation price of the taxable sold commodity or service multiplied (x) by the VAT rate for such commodity or service.

Business establishments being tax payers according to the tax deduction method, when selling goods and services, shall have to calculate and collect VAT on such goods and/or services. When making sale invoices, the business establishments clearly state the non-tax prices, VAT amounts and the total amounts to be paid by the buyers. In cases where an invoice only records the payment price without stating the non-tax price and the VAT amount, VAT on such sold goods and/or services shall be calculated on the payment prices recorded in the invoice.

Example: An enterprise selling construction steel and iron with the non-VAT price of f 6 steel rods being 4,500,000 dong/ton; the VAT at the rate of 10% being 450,000 dong/ton; but when selling such steel, the enterprise only wrote on some invoices the sale price of 4,800,000 dong/ton, so the VAT on the turnover shall be calculated as follows: 4,800,000 dong/ton x 10% = 480,000 dong/ton, instead of calculating on the non-tax price of 4,500,000 dong/ton; the enterprise buying the steel shall not also be entitled to deduct the input VAT for such non-VAT invoices.

Particularly for commodities and/or services of particular character, which are eligible for the use of vouchers with the payment price that has already included tax, the non-tax price and the output VAT shall be determined according to Point 10, Section I, Part B of this Circular.

* The input VAT is equal to (=) the total VAT amount written on the added value receipt of the goods or service purchase or the voucher on the payment of VAT on imported goods.

The input VAT which a business establishment is entitled to deduct is stipulated as follows:

+ The input tax on goods and/or services used for the production and/or trading of goods and/or services liable to VAT shall be deducted

+ The deductible input tax on goods or services arises in a month shall be declared and deducted from the payable tax amount of such month, regardless of whether such goods have been put to use or still left in stock.

Example: Enterprise A producing cement, in January 1999 sells 200 tons of cement at the price of 800,000 dong/ton (not yet included VAT), and the VAT rate is 10% (the price to be paid by the buyer is 880,000 dong/ton); also in the month, the enterprise buys materials and raw materials for cement production and business.

On the basis of the added value receipts of the raw material purchase, the input VAT amounts shall be determined as follows:

The purchased materials and raw materials are presumed to be used for the production of cement, the VAT amount to be paid by the enterprise in January 1999 is determined as follows:

+ The output VAT amount calculated on the sold cement volume is:

(800,000 dong/ton x 200 T) x 10% = 16,000,000 dong.

+ The deductible input VAT amount is: 9,350,000 dong.

+ The remaining VAT amount to be paid for January 1999 is:

16,000,000 dong - 9,350,000 dong = 6,650,000 dong.

In cases where the establishment has bought materials and raw materials without invoices, receipts or with invoices or vouchers which are not the added value receipts or which are the added value receipts but failed to separate the VAT amount from the sale price, it shall not be entitled to the deduction of input tax, except for the following specific cases:

+ Where the purchased goods and/or services are of the categories eligible for the use of vouchers with the payment price being the price already added with VAT, the establishment shall base itself on the tax-added price and the calculation method mentioned in Point 10, Section I, Part B of this Circular to determine the non-tax price and the deductible input VAT.

Example: Within the period, company A pays the deductible input service of particular category:

The total payment price is 110 million dong (the price added with VAT), this service is subject to the tax rate of 10%, the deductible input VAT shall be calculated as follows:

110 million

----- x 10% = 10 million dong.

1 + 10%

The non-tax price is 100 million dong, the VAT is 10 million dong.

+ Where the production/processing establishment buys raw materials which are unprocessed agricultural, forest and/or aquatic products sold by producers without invoices, the input tax shall be deducted according to the rate (%) calculated on the value of the purchased goods:

- 5% for cultivation products from resin, latex and oil yielding trees, sugar canes, green-tea buds, paddy, maize, potato, manioc; husbandry products including cattle, poultry, shrimps, fish and other aquatic products;

- 3% for products being agricultural and forest products not specified in the above 5% - deduction group.

Example 1: Sugar manufacture enterprise A buys sugar canes directly from the cane growers (sugar cane is a cultivation product not subject to VAT). In the month, it buys 100 tons of sugar cane at the price of 200,000 dong/ton. When the payable VAT is calculated, the enterprise shall be entitled to the following deducted amount of input tax on sugar cane:

200,000 dong/ton x 100 tons x 5% = 1,000,000 dong.

The calculation of deducted amount of input tax on purchased raw materials being the above agricultural, forest and/or aquatic products shall not apply to establishments which buy them for the production of export goods, for trading and food catering service.

- In cases where the purchased goods and/or services are used simultaneously for production of and trading in goods and/or services subject to VAT and for those not subject to VAT, only the input tax on goods and/or services used for the production of or trading in goods and/or services subject to VAT shall be deducted.

Business establishments shall have to account separately the amount of input tax to-be-deducted and that not to be deducted; if it is unable to account them separately, the deduction is made according to the rate (%) between the turnover liable to VAT and the total sale turnover.

Example 2: Like in Example 1, enterprise A has used electricity for cement production only with 4,000 kW and the remaining 1,000 kW for the workers' living quarters (the establishment can account separately the electricity used for the workers' living quarters), the establishment shall only be entitled to deduct the input VAT on electricity used for cement production, concretely as follows:

The amount of input electricity VAT to be deducted in the month is: 4,000 kW x 700 dong/kW x 10% = 280,000 dong, instead of 350,000 dong like in Example 1 (above).

In cases where the establishment manufactures and/or trades in commodities and/or services of both categories which are subject and not subject to VAT but cannot account separately the deductible input tax, the input tax shall be deducted according to the percentage (%) of the turnover of the commodities and/or services subject to VAT on the total turnover of the sold commodities and services.

Example 3: In the tax calculation period, an enterprise which manufactures both beer (subject to the special consumption tax) and soft drinks (subject to VAT) has purchased some kinds of materials for the production of both kinds of such products but cannot account separately the volume used for the production of each kind of such products. The input tax on those materials shall be as follows:

- The total value of the purchased materials is 1,500 million dong (non-VAT price).

- The general input VAT according to the added value receipt is 120 million dong.

- The sale turnover is 3,000 million dong (not yet included with VAT), in which:

+ The turnover of the commodities subject to VAT is 2,000 million dong.

+ The turnover of the commodities not subject to VAT is 1,000 million (for commodities subject to special consumption tax, it is calculated according to the sale price set by the production establishment).

+ The output tax calculated on the sale price of the commodities subject to VAT is 200 million dong.

The deductible input VAT on the above-mentioned materials shall be calculated as follows:

+ Determining the percentage of the commodities subject to VAT on the total sale turnover: 2,000 million/3,000 million = 66.6%.

+ The amount of input tax to be deducted according to this percentage (%) is: 120 million x 66.6% = 79.9 million dong.

+ The VAT amount to be paid for the soft drinks is:

200 million - 79.9 million = 120.1 million dong.

* The input tax on fixed assets shall be deducted as follows:

A business establishment which has deductible input tax on fixed assets shall declare the deduction of input tax on fixed assets as for materials and other commodities. In cases where the fixed assets input tax amount is large, the establishment shall be entitled to deduct it gradually. If after three months, the tax amount is not fully deducted, the enterprise shall fill the procedures requesting the tax agency to consider and refund the remaining tax amount not yet deducted.

Example 1: During the year, enterprise X expands its production, purchasing new machinery and equipment valued at 10 billion dong, the input VAT is 1 billion dong. After making the deduction from the payable tax amounts in three months, enterprise X still has 600 million of the input tax not yet deducted; so it can fill the procedures requesting the tax agency to refund the remaining tax amount of 600 million dong.

Particularly for business establishments which have registered the payment of VAT but are newly set up establishments having no sale turnover yet and having no output tax yet for the deduction of fixed asset input tax, and if their investment duration is 1 year or more, they shall be entitled to be considered for the input tax refund on the annual basis (according to the calendar year). In cases where the VAT amount is large, the establishments can propose the tax refund on the quarterly basis.

Example 2: Production establishment A has an investment project; the total construction and installation value is 40,000 million dong and the purchase of machinery and equipment is 15,000 million dong. The project has been built in three years. In the first year, machinery and equipment are imported at the value of 5,000 million dong, the VAT amount paid for the import is 500 million dong, and the establishment has paid to the construction contractor 1,000 million dong (the non-VAT price), for the completed construction and installation; the input VAT calculated on the value of the constructed houses and workshops already handed over is 100 million dong. So, the amount of input VAT on the imported supplies and fixed assets arising in the year is 600 million dong. The establishment shall be entitled to the refund of the VAT on investment assets under Article 15 of Decree No. 28/1998/ND-CP and the guidances in Part D of this Circular.

2. Method of calculating VAT directly on the added value

a/ Objects of the application of the method of calculating VAT directly on the added value shall include:

- Individuals conducting production and business, who are Vietnamese;

- Foreign organizations and individuals conducting business in Vietnam not under the Law on Foreign Investment in Vietnam, that have not yet met all conditions on accounting, invoices, vouchers serving as basis for tax calculation according to the tax deduction method;

- Business establishments purchasing and selling gold, silver, gems, foreign currencies.

b/ Determining the payable VAT:

Added value The VAT rate

The payable VAT = of taxable goods - for such goods

and/or services and/or services

The added The payment The payment

value of prices of such prices of the

goods = sold goods - corresponding

and/or and/or purchased goods

services services and/or services

(1) (2)

(1) The payment prices of sold goods and/or services are the actual sale prices the purchasers have to pay to the sellers, which also include VAT, additional collections and surcharges to be paid by the purchasers.

(2) The payment prices of purchased goods and/or services corresponding to sold goods and/or services are determined as the value of the purchased goods and/or services (the purchase prices with VAT) which the production and/or business establishments already used for the production of and/or trading in goods and/or services subject to the output VAT.

The added value of a number of business lines is determined as follows;

- For goods manufacture and sale activities, it is the difference between the sale turnover and the value of purchased supplies, goods and/or services for production and/or business activities. In cases where the business establishments cannot account the turnover of the purchased materials, commodities and/or services corresponding to the sale turnover, it shall be determined as follows:

The sale price of goods is equal to (=) the turnover remainder at the beginning of the period plus (+) the purchase turnover in the period, minus (-) the turnover remainder at the end of the period.

Example: Establishment A producing wood articles sells in the month 150 products with the total sale turnover of 25 million dong.

- The value of the materials and raw materials purchased for the manufacture of such 150 products is 19 million dong, in which

+ The main raw material (wood) is valued at 14 million.

+ Other purchased materials and services: 5 million.

The VAT rate is 10%, the VAT amount to be paid by establishment A shall be calculated as follows:

+ The added value of sold products:

25 million dong - 19 million dong = 6 million dong.

+ The payable VAT amount is:

6 million dong x 10% = 0.6 million dong.

- For construction and/or installation activities, it is the difference of the amount collected from the construction and installation of a project, project items minus (-) the costs of materials and raw materials, power, transportation, services and other purchase expenses in service of construction and installation of the project and project items.

- For transport activities, it is the difference of the transport freights and loading-unloading charges minus (-) the costs of gasoline and oil, spare parts for replacement and other purchased things used for transport activities.

- For food catering activities, it is the difference of the amount collected from such business activities minus (-) the turnover of the commodities and/or services purchased for the performance of such business activities.

- For other business activities, it is the difference of the amount collected from such business activities minus (-) the turnover of the commodities and/or services purchased for the performance of such business activities.

The turnover of the sold commodities and/or services prescribed above include the additional collections, surcharges besides the sale prices, which the establishment is entitled to enjoy, regardless of whether the money is already or not yet collected.

The turnover of the purchased commodities and/or services mentioned above also include tax amounts and charges already paid and accounted into the payment prices of purchased commodities and/or services or imported commodities.

c/ The method of determining the added value as basis for the calculation of VAT to be paid by each business establishment as follows:

- For the business establishment which has fully effected the purchase and sale of goods and/or services with invoices, receipts, vouchers, and records in the accounting book, the added value shall be determined on the basis of the purchase price and sale price written on the voucher.

- For the business establishment which has fully effected the sale of goods and/or services with invoices and accurately determined goods and/or service sale turnover but failed to fully acquire the goods and/or service purchase receipts, the added value shall be determined with the turnover multiplied (x) by the percentage (%) of the added value on the turnover.

- For business individuals (households) that have not yet effected or has effected but not thoroughly the sale and purchase of commodities and/or services with invoices and receipts, the tax authority shall base itself on the business situation of each household to determine taxable turnover; the added value shall be determined with the fixed turnover multiplied by the percentage (%) of the added value of the turnover.

The General Department of Taxation shall guide the provincial/ municipal Taxation Departments in determining the percentage (%) of the added value on the turnover, serving as basis for the calculation of VAT suitable to each business line and rational among localities.

IV. INVOICES AND VOUCHERS

ON THE PURCHASE AND/OR SALE OF COMMODITIES AND SERVICES

Business establishments shall have to fully implement the regulations on the use of invoices and vouchers for the sale and purchase of goods and/or services as prescribed by laws.

1. Business establishments that pay VAT by the method of tax deduction shall have to use the receipt on added value (except for cases of eligibility for the use of vouchers recording the payment prices which are prices with VAT).

When making the invoices on the sale of commodities and/or services, the business establishment shall have to fully and accurately record all details prescribed in the invoice and receipt, and clearly state: the non-tax sale prices, additional collections and surcharges (if any) beside the sale prices, the VAT, the total payment price with tax.

If a business establishment selling commodities and/or services fails to record separately the sale turnover and the VAT, but only record the general payment price, the output VAT must be calculated on the payment price.

Business establishments are not entitled to deduct the input VAT if VAT is not recorded in the receipts of goods and/or service purchase (except for goods and/or services of particular character, which are eligible for the use of voucher stating the payment price with VAT already included therein).

2. Business establishments subject to the payment of tax directly on added value and establishments trading in commodities and/or services not liable to VAT shall use the common invoices. The sale prices of commodities and/or services stated on the invoices are the actual payment prices that have already included VAT (for commodities and services liable to VAT).

3. Business establishments which wish to use invoices and vouchers different from the set forms (including self-issued invoices) shall have to register their own invoices and vouchers with the Ministry of Finance (the General Department of Taxation), and shall be entitled to use them only after receiving the written approval. In cases where the enterprises register the use of their self-printed invoices, they must ensure all details in the invoices according to the set forms.

4. Business establishments directly retailing their goods and/or providing services to consumers and/or users at a price lower than the invoice-making level, they may not have to make the invoices. If the establishments do not make the invoices they shall have to make lists of retailed goods according to form 05/GTGT which shall serve as the basis for VAT calculation; in cases where the buyers request the invoices, they shall have to make them according to regulations.

5. If business establishments buy goods items which are agricultural, forest and/or aquatic products from the direct producers or non-traders without invoices as prescribed, they shall have to make lists of purchased goods according to form 04/GTGT.

The business establishments shall have to manage and use invoices and vouchers in accordance with the regulations on invoices and vouchers, issued by the Ministry of Finance.

C. TAX REGISTRATION, DECLARATION, PAYMENT AND FINAL SETTLEMENT

I. TAX PAYMENT REGISTRATION:

1. All business establishments, including their attached units, branches and shops, shall have to register their tax payment with the provincial/municipal Taxation Departments (or sub-Departments for business individuals) with regard to their business locations, business lines, labor, capital, places of tax payment and relevant details according to the set form of tax payment registration and to the guidance of tax authorities.

For newly set up establishments, the time limit for tax payment registration shall be no later than 10 days from the date the establishments are granted the business registration certificates; in cases where the establishments have not yet been granted the business registration certificates but have already conducted business activities, they shall have to register the tax payment before conducting the business activities.

If an establishment which has already registered its tax payment has any changes in its business lines, is subject to a merger, dissolution, splitting, separation, or opens its shops, branches..., it shall have to make the registration thereof with the tax authority within 5 days before such change occurs.

2. In cases where an establishment conducts its production activities in a number of localities (provinces, cities directly under the Central Government) but has its head-office and transaction offices for goods sale procedures in a number of other localities, its goods selling establishments shall also have to register the VAT payment with the tax authorities in localities where goods are put on sale.

3. Trade and/or service establishments having shops and/or branches in different localities shall have to register the tax payment by each of their shops and/or branches with the tax authorities in the locality where such shop and/or branch is opened.

4. Construction establishments shall have to register their tax payment with the tax authorities in the localities where they are headquartered and also with the tax authorities of the localities where the projects are constructed.

5. For establishments that assign business activities to collectives and/or individuals by mode of being self-responsible for their respective business results, such collectives and/or individuals shall have to directly register, declare and pay VAT to the tax authorities in localities where their business activities are carried out.

6. If business establishments which are subject to the application of the method of calculating tax directly on the added value have strictly and fully observed the regulations on the purchase and sale of goods and/or services with invoices and vouchers, have kept records in the accounting books according to the prescribed regimes, have declared and paid VAT as prescribed and voluntarily registered their VAT payment by the method of tax deduction, they shall be entitled to the tax deduction method. Such establishments shall have to make and submit the tax registration forms to the tax offices in the localities where they have registered their tax payment. Upon the receipt of such registrations from the establishments, the tax authorities shall have to examine them and promptly inform the concerned establishments of whether they are entitled to pay VAT by the method of tax deduction or not (stating clearly the reasons therefor) within 30 days after the receipt of the requests from the establishments. The establishments can pay tax by the tax deduction method only after they get the approval from the tax authorities.

If business individuals (or households), that pay tax by the method of calculating tax directly on the added value, are deemed by the tax authorities to have fully met conditions for the application of the tax payment by the tax deduction method, the tax authorities shall permit them to apply the tax deduction method.

7. Regarding the granting of code numbers to tax payers: The business establishments which have registered the tax payment with the tax authorities, the latter shall have to give them the tax codes according to the regulations on the granting of code numbers to the tax payers.

II. DECLARATION OF VAT TO BE PAID INTO THE STATE BUDGET:

All production and/or business establishments and goods importers shall have to declare their payable VAT according to the following regulations:

1. Establishments trading in goods and/or services liable to VAT shall have to make and submit to the tax authorities the VAT calculation declaration every month together with the lists of goods and/or services purchased and sold according to set forms. The declaration of a month must be sent to the tax authorities in the first ten days of the following month at the latest.

In cases where there have not arisen the goods and/or service sale turnover, the input tax and the output tax, the business establishments shall still have to make and submit such declarations to the tax authorities. They shall have to declare fully according to the set form of tax declaration and take responsibility for the accuracy of their declarations. In cases where a business establishment has detected errors in their declared data after sending its declaration to the tax authority, it shall have to inform the tax authority thereof and at the same time to make a new declaration to replace the erronous one or make the correction on the declaration of the following month (if the error is detected after the tax authority has issued the tax payment notice).

The declaration of payable tax amounts for a number of cases is stipulated as follows:

- For construction contractors, if the construction prolongs and the payment is made according to the construction tempo or according to the volume of work already done and handed over, the construction establishments shall have to declare the temporarily paid tax amount arising every month, which is calculated according to the amounts of payment temporarily made to them. When making invoices on the payment for the volume of construction and installation already handed over, they shall have to clearly determine the non-tax turnover and the VAT. If the payment invoices fail to state clearly and separately the non-VAT payment price and VAT, the output VAT shall be calculated on the total turnover already paid.

Example: Hanoi construction company contracts to build for company B a hotel. In March 1999, the Hanoi construction company receives a payment of 600 million dong (without stating clearly the VAT amount); so the output tax to be declared in the month by the Hanoi construction company is:

600 million dong x 10% = 60 million dong.

- Establishments which deliver goods for sale through agents or for entrusted sale shall have to make invoices clearly stating the prices of delivered goods and the VAT thereon as basis for the calculation of the output tax and the payable tax amount of the month (considered the temporary payment). Upon the expiry of the contracts or at the end of the fiscal year, the establishments shall declare and make the final settlement of the actually sold goods so as to determine the actual amount of payable VAT.

- Establishments selling agency or entrusted goods shall declare the payable VAT calculated on the turnover of the agency activities or entrusted sale by the tax calculation method applicable to the establishments.

- The following kinds of agents shall not have to declare and pay VAT on commissions earned from the agency activities:

+ Agents which sell goods at the prices set by the goods owners and only enjoy commission; the sale turnover and the VAT amounts calculated on sold goods shall be fully returned by the agents to the goods owners who shall declare and pay VAT on the volume of goods sold by the agents.

+ Agents selling lottery tickets for commissions, VAT shall be declared and paid by the lottery company at its office.

- For corporations and companies with attached units, the declaration of payable VAT shall be made as follows:

+ Units with independent accounting and units with dependent accounting which can determine their output VAT and input VAT shall have to declare and pay VAT at the localities where they are conducting business activities.

+ For units with dependent accounting which account the purchase and sale prices of goods and/or services at the internally regulated prices, and cannot determine their turnover and payable VAT amounts, their parent companies or corporations shall declare and pay tax instead of them.

+ The offices of companies and corporations, if directly engaged in business activities, shall be entitled to the deduction or reimbursement of the input VAT having arisen at the offices. If they are not directly involved in business activities, they shall not be entitled to VAT deduction or reimbursement.

+ Units attached to corporations such as hospitals, medical stations, sanatoriums, institutes, schools..., which do not directly trade in goods and/or services liable to VAT shall not have to declare and pay VAT and shall not be entitled to the deduction or reimbursement of VAT on the goods and/or services purchased by the units for their own use. If such units produce and/or trade in goods and/or services liable to VAT, they shall have to separately account, declare and pay VAT on the taxable goods and/or services.

All corporations and companies shall base themselves on the situation of their business organization and operations to concretely determine and register their units subject to tax declaration and payment with the tax authorities in the localities where such units conduct business activities. In cases where they need to apply ways of VAT declaration and payment other than the above guidance, the corporations and companies shall have to report them to the Ministry of Finance for detailed guidance.

2. For foreign economic organizations and individuals that are engaged in the production and/or supply of taxable goods and/or services in Vietnam but do not have their offices or executive offices in Vietnam, the organizations and individuals in Vietnam that have directly signed goods and/or service sale contracts with such foreign organizations and individuals shall have to declare and pay VAT for the foreign parties before making the payment to the foreign parties.

Example 1: Company A in Vietnam acts as a sale agent for a foreign company; so Company A shall have to declare and pay VAT on goods liable to VAT when importing and selling them in the country as for goods imported for sale by the company itself.

Example 2: Company B in Vietnam hires a foreign firm to make a construction design at the contractual service price of 100,000 USD, Company B in Vietnam shall have to pay the amount of VAT calculated on the price of payment for such service. The VAT amount already paid by Company B is considered the input tax for deduction calculation according to tax deduction regulations.

3. Business establishments and/or importers that have imported goods liable to VAT shall have to make and submit the VAT declaration for each importation, together with the import tax declarations made with the customs offices that collect import tax.

4. Business establishments conducting consignment trading shall have to declare and pay tax for each goods consignment to the tax authorities in the localities where goods are purchased before their delivery. The tax amount to be paid for goods on consignment trading shall be calculated directly on the added value.

5. Establishments trading in different kinds of goods and/or services with different VAT rates shall have to declare VAT according to each tax rate set for each kind of goods and/or service; if the business establishments cannot determine VAT according to each tax rate, they shall have to calculate and pay tax at the highest rate applicable to goods and/or services they produce and/or trade in.

Example: Tourist Company A deals in hotels, food catering, telephone services, sells souvenirs, beer, soft drinks and curative medicines.

Tourist Company A has to account separately the turnover for each business operation, each kind of goods sold so as to calculate VAT according the tax rate for each operation and each kind of goods:

- Dealing in hotels, tourism, food catering: 20%

- Telephone service and selling beer, soft drink, confectionery, liquor, souvenirs: 10%

- Selling curative and preventive medicines: 5%.

If Tourist Company A cannot account separately the turnover and output tax according to each kind of services and goods with different tax rates, it shall have to pay VAT at the rate of 20% on the total turnover.

In cases where a business establishment or an importer fails to submit the tax declaration or has made incomplete and/or improper declaration, the tax authority shall have the right to base itself on the establishment's business situation and survey data to set the turnover and the payable VAT amount, and inform the establishment thereof for implementation. If the business establishment disagrees with the tax level set by the tax authority, it can lodge its complaint to the higher-level tax authority or the competent agency; but pending the solution, it shall have to pay tax at the rate set by the tax authority.

III. VAT PAYMENT

Business establishments and importers subject to tax declaration as defined in Point II above as well as individuals and small business households liable to pay VAT according to the set turnover level for calculation of added value and the payable tax amount shall have to pay VAT fully and on time into the State budget according to the tax payment notices of the tax authorities.

The order and procedures for tax payment shall be as follows:

1. For business establishments that pay tax monthly according to tax payment notices of the tax authorities, the deadline for payment of the month's tax shall be no later than the 25th of the following month.

Upon receiving the tax payment notice which clearly states the payable tax amount, an establishment shall have to pay tax money directly into the State budget (at the State Treasury). For an establishment that has opened a deposit account at a bank, it may carry out procedures requesting the bank to deduct and transfer money from its deposit account into the State budget, and the time for tax payment into the State budget is counted from the date the bank transfers the money from the establishment's bank account into the State budget. In cases where the time for tax payment has come and the establishment has not yet received the tax payment notice, it can base itself on the payable tax amount according to its declaration to take initiative in paying tax into the State budget.

For establishments with large amounts of tax to be paid monthly, the temporary payment of tax amount arising in the month is made periodically once every 10 or 15 days; when declaring the tax amount to be paid for the whole month, the establishments shall subtract the tax amount temporarily paid and pay the rest. The tax payment period shall be determined by the tax authorities and notified to the establishments for implementation.

For business individuals (or households) that pay tax according to levels set on the turnover, the tax authorities shall base themselves on the set tax levels to issue notices on tax payment. The deadline for issuance of tax payment notice of the month for business households shall be determined by the tax authorities according to each business line and each locality but shall not be later than the 25th of the following month.

For business individuals (or households), (excluding those paying tax according to declaration), that are far away from the State Treasury or conduct mobile business activities, the tax authorities shall collect and pay tax into the State budget. The time-limit for the tax authorities to pay the collected tax amount into the State budget shall not be more than three days (from the date the tax money is collected); particularly for mountainous, island and difficult-to-access areas, it shall not be more than 6 days.

2. Business establishments and individuals that import goods shall have to pay VAT upon each importation. The deadline for issuing a notice and the deadline for payment of VAT on imported goods shall be the deadlines for the import tax notice and payment.

For goods not liable to import tax or having the import tax rate of 0%, the deadlines for VAT declaration and payment shall comply with the regulations on goods subject to import tax.

For non-commercial import goods and cross-border non-quota import goods, the form of notice on the payment of declared tax shall not apply, and VAT shall be paid upon the importation.

For import goods not liable to VAT upon their importation such as raw materials imported for the production and/or processing of export goods, donations, gifts, humanitarian aid, non-refundable aid..., if they are sold or used for other purposes, the VAT thereon must be declared and paid to the tax authorities directly managing the establishments, as prescribed for goods the establishments trade in.

3. An establishment with fixed business location, when going to buy raw materials and goods, transporting its goods for sale or exchange with other establishments or transporting goods within the establishment, must have adequate invoices and vouchers as prescribed for goods being circulated on the market. If it fails to acquire enough vouchers as required, the establishment shall have to pay VAT calculated on the goods value, to pay import tax arrears and VAT on the importation if they are imported goods.

For all cases of tax collection, the tax collecting agencies shall have to issue to the tax payers the tax collection receipts or vouchers which are uniformly issued by the Ministry of Finance. The tax authorities shall have to guide and inspect business establishments in the observance of the regulations on book-keeping, recording and accounting clearly the VAT amounts on the receipts or vouchers to serve as basis for calculation of VAT amounts to be paid and the VAT amounts to be deducted.

4. In a taxation period, if an establishment gets an overpaid tax amount in the previous period, it shall be entitled to deduct in from the payable tax amount for this period; if the tax was underpaid in the previous period, the outstanding amount must be paid in the current period. Business establishments that pay VAT by the deduction method, in the taxation period if having deductible input tax larger than the payable output tax, shall be entitled to deduct such larger amount in the following taxation period. In cases where an establishment which makes investment in new fixed assets has a large deductible input tax amount, it shall be entitled to deduct gradually or has its tax refunded according to the provisions in Part D of this Circular.

5. The VAT shall be paid into the State budget in Vietnam dong. In cases where a business establishment has its turnover or purchases goods and/or services in foreign currency(ies), it shall have to convert the foreign currency(ies) into Vietnam dong at the average actual buying and selling rates on the inter-bank foreign currency market, announced by the State Bank of Vietnam at the time the purchase and/or sale of such goods and/or services in foreign currency(ies) occur in order to determine the payable VAT amount.

IV. FINAL SETTLEMENT OF VAT

Under the provisions in Article 14 of Decree No. 28/1998/ND-CP, all business establishments of every economic sector (except for small and medium business households which pay tax according to fixed turnover levels and households engaged in consignment trading which pay tax according to each consignment of goods) shall have to make the final settlement of VAT with the tax authorities.

The tax settlement year is calculated according to the calendar year. The time-limit for a business establishment to submit its final tax settlement to the tax authority shall be no more than 60 days from December 31 of the tax settlement year.

In cases where a business establishment is merged, amalgamated, divided, split up, dissolved or bankrupt, it shall still have to make the final tax settlement with the tax authority within 45 days from the date the decision on merger, amalgamation, division, split-up, dissolution or bankruptcy is made.

Business establishments shall have to make the final financial settlement according to the State's prescribed regime; on the basis of the final financial settlement, business establishments shall have to declare fully the payable tax amount, the already paid amount of the year or the settlement deadline, the outstanding or overpaid tax amount by the time of final tax settlement. The establishments shall have to declare fully an accurately all details and data according to the final tax settlement form; submit the final tax settlement to the tax authorities of the localities where the establishments have registered their tax payment within the time limits prescribed above. In cases where an establishment is entitled to apply the final financial settlement not according to the calendar year, it shall still have to make the final VAT settlement according to the calendar year.

Business establishments shall have to pay the outstanding VAT into the State budget after 10 days from the date the final tax settlement report is submitted; if tax is overpaid, the overpaid amount shall be deducted from the payable amount of the following period, or the tax shall be reimbursed if establishments fall in the cases of tax reimbursement or are eligible therefor.

Business establishments shall have to bear the responsibility for the accuracy of the final tax settlement data; if any business establishment makes false report in order to evade tax or falsify tax it shall be sanctioned according to law.

D. THE REIMBURSEMENT OF VALUE-ADDED TAX

I. SUBJECTS AND CASES ENTITLED TO VAT REIMBURSEMENT

1. Business establishments that pay tax by the method of tax deduction shall be considered for tax reimbursement in the following cases:

a/ Where they have the deductible input tax amounts of the months in a quarter often larger than the output tax amounts of the months in the quarter.

Example: Enterprise A that trades in export goods has the input VAT amounts for the months of the first quarter of 1999 as follows:

Unit: million dong

Month Input Output Payable Progressive

tax tax tax payable tax amount

January (1) 200 100 - 100 - 100

February (2) 400 300 - 100 - 200

March (3) 500 100 - 400 - 600

According to the above example, for 3 consecutive months in the first quarter, Enterprise A has the input tax larger than the output tax. It is eligible for input VAT reimbursement which is made in early the following quarter and the reimbursed tax amount is 600 million dong.

VAT reimbursement dossiers:

In order to create basis for tax reimbursement to business establishments, the establishments shall have to make dossiers requesting the reimbursement of already paid VAT amounts. Such a dossier shall include:

An official request for the reimbursement of the input VAT already paid, clearly stating the reasons for tax reimbursement and the tax amount to be reimbursed, which is enclosed with:

+ The general list of the arising output tax amount, the deductible input tax amount, the tax amount already paid, the amount of input tax larger than the output tax amount, proposed to be reimbursed.

+ The lists of goods and/or services purchased and sold in the period, relating to the determination of the input and output VAT.

If the monthly tax declarations are complete and accurate, establishments only need to sum up data already declared in different months to determine the tax amount proposed to be reimbursed.

b/ Business establishments export goods items according to seasons or to each importation in large quantity, if the deductible input tax is large, they shall be entitled to the consideration for VAT reimbursement according to each period or month.

Example: Company A purchases processed agricultural products from production establishments for export in order to ensure the quantity of export goods under the contract for goods delivery in May 1999. In March and April 1999, the company has to mobilize capital for the purchase of a large quantity of goods, hence a large input VAT amount also arises; in this case, the company may request the reimbursement of the input tax on goods purchased for exportation. The tax reimbursement dossier shall comply with the provisions in Point a.

2. Business establishments that pay tax by the method of tax deduction, invest in the procurement of fixed assets and have large deductible input VAT shall be entitled to tax reimbursement as follows:

a/ For newly invested establishments which have already registered their tax payment but had no sale turnover for output VAT calculation and if the investment duration is one year or more, they shall be considered for input tax reimbursement on the annual basis. In cases where an establishment has a large refundable input VAT on invested assets, it shall be considered for tax reimbursement on the quarterly basis.

Example 1: A business establishment is newly set up in 1999. In 1999, it invests 6 billion dong in construction and installation and 2 billion dong in machinery and equipment.

- Th input VAT on raw materials used for construction and installation is 400 million dong.

- The VAT on imported machinery and equipment is 200 million dong.

By the end of 1999, the project is not yet put into production and business operation; there has been no turnover, hence no payable VAT. After making the final VAT settlement report, in 1999, the refundable input tax is determined as 600 million dong, the establishment makes the dossiers requesting the tax authority to refund the VAT amount of 600 million dong.

In cases where the establishment is newly invested but the enterprise is not yet set up or is already set up but tax payment registration is not yet made, the establishment is not entitled to VAT reimbursement under this regulation.

b/ For a business establishment that makes extensive and/or intensive investment, if the amount of input VAT on invested assets is not fully deducted in 3 months (from the month when the input tax on invested assets arises), the remaining deductible tax amount shall be reimbursed.

Example 2: Enterprise A in the first quarter of 1999 procures a number of new machinery and equipment for extensive investment in a production chain, the input VAT is 500 million dong. In the second quarter, the output VAT amount only arises after deducting the input tax amount. By the end of the second quarter, only 200 million dong of the total input VAT on invested assets were deducted; so Enterprise A is entitled to have the remaining 300 million dong of its input VAT on fixed assets reimbursed.

Establishments eligible for tax reimbursement as prescribed in Point 2 above shall have to make dossiers applying for tax reimbursement, which must be submitted together with general documents as prescribed and feasibility report or investment project.

3. A business establishment that has an overpaid VAT amount after making the final tax settlement upon merger, amalgamation, division, split-up, dissolution or bankruptcy shall be entitled to request the tax authority to reimburse it.

Such business establishment shall have to acquire the following documents:

- The official request for the reimbursement of the VAT amount overpaid into the State budget.

- The decision on merger, amalgamation, division, split-up, dissolution or bankruptcy, issued by the competent level.

- The final VAT settlement by the time of merger or dissolution.

4. Business establishments shall have their tax reimbursed under decisions of the competent agencies as prescribed by law; and/or decisions of the Minister of Finance.

II. COMPETENCE AND ORDER FOR SETTLEMENT OF VAT REIMBURSEMENT

1. The competence to settle the tax reimbursement:

- The Sub-Departments of Taxation shall have the responsibility and competence to consider and settle the VAT reimbursement for business individuals (or households) that they manage in term of tax collection.

- The provincial/municipal Taxation Departments shall have the responsibility and competence to consider and settle the tax reimbursement for business establishments that pay tax by the method of tax deduction and business organizations that pay tax by the method of calculating tax directly on the added value and that are managed by the provincial/municipal Taxation Departments in term of tax collection.

- The Minister of Finance shall decide the tax reimbursement for special cases and for corporations set up under Decision No. 90/TTg and Decision No. 91/TTg of the Prime Minister if the tax reimbursement is concentrated at the offices of corporations.

2. Procedures and order for tax reimbursement:

The tax authorities at levels shall have to guide subjects entitled to tax reimbursement to make complete and proper dossiers on tax reimbursement as prescribed and have to inspect and determine the tax amounts to be reimbursed to business establishments, and to issue tax reimbursement decisions to be sent to the State Treasury. The Treasury shall have to carry out procedures to reimburse tax to establishments within 5 days from the date of receiving the tax reimbursement decisions of the tax authorities or the competent bodies. The time-limit for considering and settling the tax reimbursement for an establishment by the tax authority is 15 days from the date of receipt of complete dossiers; in cases where the dossiers must be examined and verified, that consumes a lot of time, the time-limit for settlement shall also not exceed 30 days. If the dossiers need to be supplemented or the establishment is not entitled to tax reimbursement, the tax authority shall have to inform the establishment thereof within 10 days from the date of receipt of the dossiers.

For cases and subjects under the Finance Minister's competence to settle the tax reimbursement, Directors of the provincial/municipal Taxation Departments shall have to examine and verify data, then report them to the General Department of Taxation for sum-up and submission to the Minister of Finance for decision.

E. TASKS, POWERS AND RESPONSIBILITIES OF TAX AUTHORITIES

1. The tax authorities shall have to guide business establishments with business registration to implement the regulations on VAT registration, declaration and payment in accordance with the Law on Value-Added Tax.

Business establishments that fail to abide by the regulations on tax registration, declaration and payment, the tax authorities shall sanction such establishments for the tax-related administrative violations according to law.

2. The tax authorities shall inform the business establishments of their payable tax amounts and the time-limit for tax payment. The tax payment notices must be addressed to tax payers at least three days before the date of tax payment stated in the notices; the deadline for payment of the tax of the month must not be later than the 25th of the following month.

Particularly for business individuals that pay tax according to the set turnover, the tax notice is issued and the tax payment date is set in the month or in early the following month.

If past the tax payment time-limit stated in the notice a business establishment still fails to pay tax, another notice shall be issued; if the tax payment is due according to the provisions of law and the establishment still fails to pay tax, the tax notice shall include the payable tax amount and the amount of fine on late payment as prescribed in Clause 2, Article 19 of the Law on Value-Added Tax. The time for calculating fine on the late monthly payment shall be counted from the 26th day of the following month; the time for calculating fine on the late payment of tax on import goods and other cases shall be counted from the date after the date of tax payment prescribed by law. If the establishment still fails to pay tax and fine according to the notice, the tax authority shall be entitled to apply or request the competent agency to apply handling measures against the tax-related administrative violations, as prescribed in Clause 4, Article 19 of the Law on Value-Added Tax in order to ensure the full collection of tax and fines. If such business establishment still once again fails to pay the full amount of tax and fine even after such handling measures are taken against the tax-related administrative violations, the tax authority shall transfer the dossiers to competent bodies for handling according to law.

3. To examine and inspect the tax declaration, payment and final settlement by business establishments in order to ensure the strict observance of law.

4. To handle tax-related administrative violations and settle tax complaints in accordance with the provisions of law.

5. To request the tax payers to provide accounting books, invoices, vouchers and other records as well as documents related to tax calculation and payment; to request credit institutions, banks and other concerned organizations and individuals to provide documents related to tax calculation and payment.

6. To keep and use data and documents provided by business establishments and other subjects in accordance with the prescribed regime.

7. The tax authorities shall be entitled to set the payable VAT amounts for tax payers in the following cases:

a/ Where a business establishment fails to implement or has improperly implemented the regulations on accounting, invoices and vouchers.

For business establishments which pay VAT by the method of direct calculation on the added value and business establishments engaged in consignment trading, which fail to effect or have inadequately effected the purchase and sale of goods and/or services with invoices and vouchers, the tax authorities shall base themselves on their business situation to determine the added value and the tax amount to be paid by the method of direct calculation on the added value as mentioned at Point 3, Section III, Part B of this Circular.

For business individuals and small as well as medium business households (referred collectively to as the business households), the payable tax amount set for each time may serve as basis for tax collection for a period of 6 months or 12 months, depending on the business lines, the price fluctuation and the business situation of such tax payers. The tax authorities shall have to publicly announce the turnover level and the tax levels for such subjects.

Small and medium business households that pay tax at fixed levels for each period of time shall have to declare any business change or suspension in that period to tax authorities for consideration and readjustment of the set tax rates; a household that suspends its business for 15 days or more in the month shall be considered for the 50% reduction of its payable tax amount of the month; if it suspends business for the whole month, tax shall be exempt for such month.

Small and medium business households that pay tax at the set levels for each period of time and have the number of days of business suspension amounting to the level of tax exemption or reduction shall have to make their application (according to set form and guidance of the tax authorities), declaring in detail the number of days of business suspension, the reasons therefor, then submit it to the district tax authorities which shall examine it. If business is actually suspended, tax exemption or reduction shall be made according to regulations.

Small and medium business households are determined according to business lines suited to the specific conditions of each locality. The determination of small and medium business households shall be specified by the Ministry of Finance. The provincial/municipal Taxation Departments shall base themselves on the business situation of households to guide their classification and determine concretely the numbers of small and medium business households in their respective localities for the application of common method of tax management and collection as prescribed.

b/ Where a business establishment fails to declare or to submit the tax declaration as notified, or has submitted the tax declaration but falsely declared the bases for determining the VAT amount;

c/ Where a business establishment refuses to produce accounting books, invoices, vouchers and necessary documents related to VAT calculation;

d/ Where a business establishment is found having conducted business without business registration and without tax registration, declaration and payment.

The tax authority shall base itself on the documents related to the survey of business activities of the establishment or on the payable tax amount of a business establishment of the same business line and the equivalent business scale to set the payable tax amount for each business establishment in the above-mentioned cases.

In cases where a business establishment disagrees with the set payable tax levels, it shall be entitled to lodge a complaint to the tax authority that has set the payable tax level or to its immediate higher authority. Pending the settlement, the business establishment or the complainant shall still have to pay tax at the level set by the tax authority.

F. HANDLING OF VIOLATIONS

I. HANDLING OF TAX-RELATED VIOLATIONS

Tax payers violating the VAT Law shall be handled as follows:

1. Those who fail to strictly abide by the regulations on business registration, tax registration, declaration, payment and final settlement, accounting book opening and on keeping invoices and vouchers related to tax calculation and payment, shall, depending on the seriousness of their violations, be subject to warning or a fine.

2. Those who delay the payment of tax or fines stated in the tax notice, tax collection order or sanction decisions, shall, apart from paying the full amount of tax or fines as prescribed by law, be subject to a fine equal to 0.1% (one per thousand) of the deferred payment amount for each day of late payment.

3. Those who falsely declare and/or evade tax shall, apart from paying the full amount of tax as prescribed by law, be subject to a fine from 1 to 5 times the falsely declared tax amount, depending on the nature and seriousness of the violations; those who evade tax with large amount or continue to commit other serious violations after being sanctioned for tax-related administrative violations shall be examined for penal liability according to law.

4. Those who fail to pay tax or fine shall be handled as follows:

a/ Deducting money from their deposit accounts at banks, treasury and or credit institutions for payment of tax and/or fines;

The banks, treasury and/or credit institutions shall have to deduct the money from the concerned tax payers' deposit accounts to pay tax and/or fines into the State budget under the tax-handling decisions of the tax authority or the competent agency before collecting debts.

b/ Seizing goods and material evidences to ensure the full collection of tax and/or fines;

c/ Inventorying property according to the provisions of law in order to ensure the full collection of the outstanding tax or fine amount.

* The handling of VAT-related violations mentioned above is carried out according to the procedures and orders prescribed in legal documents on handling of tax-related violations.

II. COMPETENCE TO HANDLE TAX-RELATED VIOLATIONS

The tax authorities at all levels, when discovering violations of the VAT Law by business establishments, shall have to inspect and clearly determine acts of violation, the extent and cause thereof, the responsibility of organizations and individuals for such acts of violation, and make dossiers as prescribed. On the basis of the regulations on the level of sanctions against tax-related administrative violations, the tax authorities shall, within the sanctioning competence of each level, issue the sanctioning decisions or request the higher-level tax authority or law bodies to handle according to prescribed competence; concretely as follows:

1. Heads of the tax authorities that directly manage the tax collection shall be entitled to handle violations committed by tax payers defined in Point 1 and Point 2 and sanction tax-related administrative violations prescribed in Point 3, Section 1, Part F of this Circular.

2. Directors of the provincial/municipal Taxation Departments and heads of the Sub-Departments for Taxation that directly manage the tax collection shall be entitled to apply handling measures defined in Point 4, Section 1, Part F of this Circular in accordance with the provisions of law and shall transfer dossiers to the competent bodies for handling according to law the violations defined in Point 3, Section I, Part F of this Circular.

G. COMPLAINTS AND STATUTE OF LIMITATION FOR IMPLEMENTATION

1. The rights and responsibilities of the tax payers in making tax complaints:

Under Article 23 of the VAT Law, organizations and individuals shall have the right to complain about improper enforcement of the VAT Law by tax officials and/or tax authorities. Complaints shall be lodged to the tax authority that issues the tax notice, the tax collection order or the handling decision within 30 days from the date of receiving the tax collection order or the handling decision. Pending the settlement, the organizations and/or individuals that make the complaints still have to pay on time the full amount of tax and/or fine stated in the tax notice. If they disagree with the decisions of the tax authorities that settled the complaint or have not received any ideas on the settlement even after the time-limit of 30 days from the submission of the application, the organizations and/or individuals shall be entitled to lodge the complaint to the higher-level tax authority or initiate a lawsuit at court according to the provisions of law.

The procedures and order for lodging complaints or initiating lawsuits as well as the consideration and settlement thereof shall have to comply with the current provisions of law.

2. The tax authorities' responsibilities and rights in settling tax complaints:

Under Article 24 of the VAT Law, the tax authorities at all levels shall have to consider and settle the tax payers' complaints within 15 days from the date of receiving the latter's written complaints. For complicated issues and cases which take a lot of time to investigate and verify, the involved parties should be informed thereof, but the time-limit for settlement shall also not exceed 30 days from the date of receiving the application; if the cases are beyond their competence to settle, they shall transfer the dossiers or report to the competent agency for settlement and inform the involved parties thereof within 10 days from the date of receiving the complaint. Upon detecting any false declaration and/or evasion of tax or any errors in tax calculation or in sanction, the tax authority shall have to collect or return the wrongly calculated tax and/or fine amounts within 5 years dating back from the date of detecting the false tax declaration, tax evasion or tax errors. In cases where a business establishment fails to make tax registration, declaration and payment, the time for collecting tax and/or fine arrears shall commence from the time the establishment commences its operation.

H. IMPLEMENTATION ORGANIZATION

I. IMPLEMENTATION EFFECT

1. This Circular takes effect for implementation as from January 1, 1999. All other circulars and legal documents stipulating and guiding the turnover tax are now annulled.

2. The settlement of remaining problems on tax, tax final settlement, tax exemption and reduction as well as the handling of the turnover tax violations before January 1, 1999 still comply with the corresponding provisions of the Turnover Tax Law, the Law on Amendments and Supplements to a Number of Articles of the Turnover Tax Law and the provisions on turnover tax in other legal documents.

3. The settlement of tax for a number of cases in transition from the turnover tax to VAT is effected as follows:

a/ For materials, goods and fixed assets left in stock or purchased before January 1, 1999, VAT shall not be deducted.

b/ Goods and/or services, which are purchased, sold or exchanged as from January 1, 1999 must all have invoices and/or vouchers. For several kinds of goods and/or services such as electricity, water, telephone... used in December 1998 by customers and the business establishments issued receipts to collect money from the customers in January 1999, the receipt on added value must also be made.

c/ For construction projects which are left unfinished and transferred from the previous years into 1999, VAT shall be applied as follows:

- For project construction volume and project items already completed and handed over before January 1, 1999, VAT shall not be calculated;

- For project construction volume and project items already completed and handed over from January 1, 1999, the construction contractors, when compiling their payment dossiers, shall have to redetermine the non-VAT price and VAT amount according to the provisions of the VAT Law.

II. VAT EXEMPTION AND REDUCTION

Pursuant to Article 28 of the VAT Law and Article 20 of Decree No. 28/1998/ND-CP of the Government, the Ministry of Finance prescribes the procedures and competence to consider the tax exemption and reduction as follows:

1. Entitled to be considered for VAT reduction are production, construction or transport establishments that have conducted production and business activities at a loss due to the fact that they have to pay a greater sum of VAT than their previous turnover tax.

Those eligible for VAT cut consideration, if having conducted other business activities, shall be considered for VAT reduction only for production, construction or transport activities. Besides the three above-mentioned subjects, other business and/or service establishments shall not be entitled to VAT cut consideration even if they suffer from losses.

2. The VAT reduction level for the above-mentioned establishments shall have to comply with the following regulations:

+ It shall not exceed the amount of loss arising in the year when the concerned establishment applies for tax exemption/reduction due to the fact that the establishment had to pay a large sum of VAT than its previous turnover tax.

+ It shall not exceed 50% of the payable VAT amount arising in the year when tax reduction is applied for.

+ The VAT amount to be paid by establishments which calculate and pay tax by the method of tax deduction is determined with the output tax amount minus (-) the deductible and refundable tax amounts of the tax reduction year (except for cases where the deductible VAT amount is large due to investment in fixed assets).

Example: In Engineering Company A, the production and business results in 1999 are recorded as follows:

- The sale turnover is 50 billion dong (without VAT).

- The total production and business cost is 56 billion dong (without VAT).

- The loss in the year is 6 billion dong.

+ The VAT rate for mechanical products is 10%

+ The VAT imposed on sold goods (the output tax) is:

50 billion x 10% = 5 billion dong

- The deductible input VAT is 3 billion dong.

- The payable VAT arising in the year is: 5 billion - 3 billion = 2 billion dong.

- With the calculation at the previous turnover tax rate of 2% on the company's products subject to turnover tax, the payable tax amount was: 55 billion dong x 2% = 1.1 billion dong.

So, the Company is eligible for VAT cut consideration; and according to the above example, the VAT reduction level is:

2 billion dong - 1.1 billion dong = 0.9 billion dong.

(The reduction level of 0.9 billion dong is smaller than the loss amount of 6 billion dong and than 50% of the payable VAT amount, namely 1 billion dong).

Also with the above example, if the Company suffered from the loss of 500 million dong in the year, the maximum VAT reduction amount is 500 million dong.

3. The VAT cut consideration according to the above regulations is made on the annual basis, according to the calendar year, and only in the first three years from 1999 to the end of 2001.

4. Those establishments eligible for VAT reduction shall have to make dossiers applying for tax reduction to be submitted to the tax authority; such a dossier includes:

- An application for tax reduction, clearly stating the reason therefor, the tax reduction duration, data showing the payable VAT amount calculated at the VAT rate is greater than the tax amount calculated at the turnover tax rate.

- The final settlement report on the business results of the year when tax reduction is applied for (according to solar calendar year).

- The final tax settlement of the year when tax reduction is applied for.

For establishments that have estimated in their plan year the loss arising due to the payment of a larger VAT amount than the turnover tax amount, and been given temporary reduction by the tax authorities managing them, shall also have to submit the temporary reduction documents and to reflect in their financial settlement report as well as final tax settlement report the payable tax amount prescribed by law and the VAT amount actually paid.

5. Tax cut consideration competence and order:

a/ Heads of the Sub-Departments of Taxation shall coordinate with concerned agencies in determining business individuals with low income level, who shall be eligible for non-payment of VAT and inform them thereof, and in considering and deciding the tax exemption or reduction for small and medium business households that pay tax by the direct calculation method in case of business suspension.

b/ Directors of the provincial/municipal Taxation Departments shall consider and decide tax reduction for business establishments that pay tax under the Taxation Departments' management. Directors of the provincial/municipal Taxation Departments shall consider and issue a notice on temporary tax reduction for eligible business establishments if they actually suffer from loss due to the above-mentioned objective cause; the temporary reduction level shall not exceed 70% of the estimated reduction level prescribed by law.

c/ The Finance Minister shall consider and decide the tax reduction for special cases and cases where the determination of tax reduction or exemption involves many localities.

For all tax reduction or exemption requests, business establishments shall have to submit dossiers to the tax authorities that directly manage them. When receiving the dossier of an establishment requesting tax reduction, the tax authority that manages such establishment shall have to check the dossier and clearly determine whether the establishment is eligible for tax reduction or not according to law, whether the dossier is complete, proper and accurate or not; if errors or incompleteness are found, the tax authority shall have to inform the establishment thereof for timely supplements and adjustments.

In cases where an establishment is not eligible for tax reduction according to law, the tax authority shall have to reply it in writing clearly stating the reason why it was not considered for tax reduction.

According to their prescribed competence, the tax authorities shall consider and issue decisions on tax reduction for eligible establishments, the General Department of Taxation and the concerned units. In cases where the tax reduction falls under the competence of the higher-level tax authorities or the Finance Ministry, the dossiers-receiving agencies, after examination, shall forward all the dossiers of the concerned establishments together with their opinions (in writing) to higher-level authorities and at the same time inform the establishments of the places where their dossiers are transferred to. Basing themselves on tax exemption or reduction decisions, the tax authorities shall make the final settlement of the payable VAT amounts with the establishments and determine the profit or loss and other budget collections.

Agencies in charge of tax cut consideration shall have to keep and manage the dossiers according to regulations.

d/ Cases of tax exemption and/or reduction according to international agreements which Vietnam has signed or acceded to or to the Government's tax exemption and/or reduction commitments shall be decided by the Government or the Finance Ministry.

All cases of turnover tax exemption, reduction or preference under the previous provisions shall be cancelled as from January 1, 1999.

III. ORGANIZATION OF VAT COLLECTION

1. The General Department of Taxation is responsible for organizing the collection and reimbursement of value-added tax for business establishments.

2. The General Department of Customs is responsible for organizing the collection of VAT on import goods.

If any problems arise in the course of implementation, units and agencies are requested to promptly report them to the Finance Ministry for consideration and additional guidances.

For the Finance Minister

Vice Minister

PHAM VAN TRONG